On the Welfare Effects of Exclusive Distribution Arrangements

Posted by D. Daniel Sokol

Jurgen Eichberger, University of Heidelberg - Alfred Weber Institute for Economics and Frank Mueller‐Langer, Max Planck Institute for Intellectual Property and Competition Law provide their thoughts On the Welfare Effects of Exclusive Distribution Arrangements.

ABSTRACT: The regulation of vertical relationships between firms is the subject of persistent legal and academic controversy. The literature studying vertical trade relationships seems to assume that an upstream monopolist prefers downstream competition over exclusive distribution arrangements. We derive precise conditions for when an upstream monopolist prefers competing distribution systems over exclusive distribution in the downstream market. We also show that the welfare effects of downstream competition are ambiguous. A downstream oligopoly may have negative welfare properties compared to a downstream monopoly.